Not only is spending a portion of your marketing budget on landing pages beneficial to your bottom line, there’s a way to predict how much you should be spending to optimize your Cost Per Acquisition (CPA).

And today I’ll share that with you.

Conversion Economics

Today I’ll expose exactly how much of your marketing oyster should be shucked off on those slippery little suckers we call landing pages.

(If I’ve got you thinking of the scene in Pretty Woman where Julia Roberts flips a snail off the table, then you know I’m adequately controlling your thoughts).

How much of your marketing budget should you spend on creating and optimizing landing pages?

According to information from Omniture (a world leader in web analytics), you can achieve a 25% improvement in conversion rate by using a promotion-specific, standalone landing page (vs. sending paid search visitors to your homepage).

Reducing Your Cost Per Acquisition (CPA)

Our goal is to analyze the effect of taking a portion of the monthly marketing spend and using it to pay someone (anyone really) for the purpose of conversion rate optimization (CRO).

If you assume that 100% of the budget is spent on generating traffic via paid search (Google AdWords in this example), what happens when you reduce that amount? Obviously the traffic will drop in direct proportion to the drop in budget.

Now, what if you spend 10%, 20%, 30% of your budget on optimizing your landing page instead of paying for traffic? In this case, 10% equates to $1,000, which will buy you a couple of days of concerted effort toward improving your landing page.

What effect will this have on your average CPA?

Finding Your Sweet Spot

The table below shows what happens when you start taking cash away from traffic to put into improving your conversion rate through optimization strategies, and how much money you should be throwing in this direction.

Campaign Budget

Conversion Costs

PPC Spend

CPC1

Visitors

Conversion Rate2

New Customers

CPA

$10,000

$0

$10,000

$0.40

25,000

1.00%

250

$40

$10,000

$1,000

$9,000

$0.40

22,500

1.25%

281.25

$35.56

$10,000

$2,000

$8,000

$0.40

20,000

1.50%

300

$33.33

$10,000

$3,000

$7,000

$0.40

17,500

1.75%

306.25

$32.65

$10,000

$4,000

$6,000

$0.40

15,000

2.00%

300

$33.33

1Average cost per click according to Google

2 Estimated conversion improvement of a successful test. Note: these numbers are also based on a diminishing percentage improvement per dollar spent. (25% initial increase by using a landing page followed by a compounded rate that bumps conversions by 25%, but is really only a 20% overall improvement in the second level – 25/125 equates to a 20% improvement).

What does this tell us?

What these numbers say is threefold:

Spending a portion of your marketing budget on Conversion Rate Optimization (CRO) will yield a lower cost per acquisition for each customer.

There is a limit (or sweet spot) to how much cash you should allocate into this endeavor.

In this example the sweet spot occurs when you are spending 30% of your budget on optimization. Spend any more and the CPA climbs as the loss in traffic catches up.

Finding the sweet spot for your CPA…

Your own private sweet spot (?) will depend on how successful your CRO efforts are, perhaps you’ll only achieve a 5% increase per $1,000 spent. The only difference is that you’ll have a different chart and a different sweet spot. The important thing to learn here is that there does exist a point where you optimize your expenditure based on optimization efforts.

About Oli Gardner

Unbounce co-founder Oli Gardner has seen more landing pages than anyone on the planet. He’s obsessed with identifying and reversing bad marketing practices, and his disdain for marketers who send campaign traffic to their homepage is legendary, resulting in landing page rants that can peel paint off an unpainted wall.
A prolific international speaker, Oli can be found at marketing conferences worldwide – travelling with his fiancée and fellow marketer Nicole Mintiens – on his mission to rid the world of marketing mediocrity by using data-informed copywriting, Conversion-Centered Design, interaction, and psychology to create a more delightful experience for marketers and customers alike.
You should follow Oli on Twitter

Well, Oli, looks like you’ve did a good analysis here.
But, I’m not so sure about the assumption that you’ll have a linear cost of 1000$ for each 0,25% increase of the conversion.
Because, the conversion optimization tools have a fixed cost, and, after a successful test, you can have more money to increase the budget as well. But, given the numbers you’ve used, it looks great to allocate something like 30% for CRO.
This study show something like 1,16% of the marketing budget goes to CRO:http://www.smartinsights.com/wp-content/uploads/2012/10/infographicconversion.jpg